Arhive: #3 2018

An impact of foreign trade on national inequality levels is one of the most discussed topics both by public,
politicians and academics. This paper contributes to this discussion by focusing on the role of foreign
trade in the Russian Federation during its rapid economic transformation in 1990–2010. During this period,
the trade-led growth model has helped to raise country-average levels of income. But simultaneously,
it seemingly triggered greater inequality in income appropriation between different social groups. Looking
into causality between foreign trade and this observed income disparity from the regional perspective will
help us to understand the poverty problem associated with income inequality better and enhance the effectiveness
of policies of the Russian government targeting income re-distribution. In particular, this research
aims to answer a question whether during 1990’s–2000’s increasing openness to foreign trade was pro-poor
on the regional level or not. Another point of interest is whether the distributional impact of growing foreign
trade on incomes in Russian regions had been positive or negative. Several hypotheses for the Russian
Federation are tested in the paper. First, higher openness to foreign trade improved income distribution in
the Russian regions. Second, globalization of regions as a result of a more active foreign trade benefited individuals
in the middle-income decile. This follows an idea that trade liberalization cuts living costs and raises
living standards. Third, regions with larger rural population will tend to have more uneven income distribution.
This follows from the neo-classical assumption that in rural areas a poverty burden tends to be larger.
Active involvement in the trade of agricultural products might improve income distribution in such regions.
Additionally, the share of dependent population among households must affect poverty headcount or the
depth of poverty as previous studies on poverty determinants naturally suggested.